VZCZCXRO3463
RR RUEHBC RUEHCHI RUEHDA RUEHDBU RUEHDE RUEHDT RUEHGI RUEHHM RUEHJS
RUEHKUK RUEHLH RUEHNH RUEHPW RUEHROV
DE RUEHKL #1642/01 3270219
ZNR UUUUU ZZH
R 230219Z NOV 07
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 0279
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 1530
RUCNASE/ASEAN MEMBER COLLECTIVE
RUCNISL/ISLAMIC COLLECTIVE

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 001642 
 
SIPDIS 
 
STATE PASS USTR - WEISEL AND JENSEN 
STATE PASS FEDERAL RESERVE AND EXIMBANK 
STATE PASS FEDERAL RESERVE SAN FRANCISCO TCURRAN 
SINGAPORE PASS TO SBAKER 
USDOC FOR 4430/MAC/EAP/J.BAKER 
TREASURY FOR OASIA AND IRS 
GENEVA FOR USTR 
SENSITIVE 
 
SIPDIS 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV MY
SUBJECT: MALAYSIA USING WORLD BANK'S DOING BUSINESS REPORT AS 
BLUEPRINT FOR REFORM 
 
 
¶1. (U) Summary:  Last spring Prime Minister Abdullah expressed 
concern about Malaysia's weakening competitiveness and established 
Pemudah, a public-private committee mandated to suggest ways the 
government could reduce red tape and increase transparency.  Pumudah 
is using the World Bank "Doing Business" report as its blueprint, 
and its goal is to raise Malaysia into a top ten country ranking by 
¶2010.   This year, Malaysia moved up just one notch in the World 
Bank's "Doing Business 2008" report, from 25th place to 24th among 
178 countries, but if the GOM continues to carry out procedural 
reforms identified by Permudah and World Bank staff, its ranking in 
the coming years should continue to improve.  At a recent Government 
hosted a half-day seminar on what Malaysia could do to improve its 
competitiveness, World Bank staff identified simple approaches to 
cutting opportunities for corruption by, among other things, cutting 
the time it took to process business licensing and registration 
requests.  Pemudah already has addressed some of these and to date, 
the time required for transferring property, paying taxes, 
processing expatriate work visas, and clearing customs has been 
reduced.  This high-level attention on improving the country's 
business climate is a step in the right direction, but private 
sector economists note that deeper reform is needed, particularly 
with regard to Malaysia's race-based preferences which are the heart 
of inefficiencies contained in the government's New Economic Policy. 
End summary. 
 
The Report 
---------- 
 
¶2. (U) This past spring, Prime Minister Abdullah told the press he 
was concerned about Malaysia's low rankings in some categories of 
the Doing Business 2007 report and established PEMUDAH, a committee 
of government and private sector leaders with a mission to identify 
and evaluate bureaucratic impediments to conducting business in 
Malaysia and to make recommendations to the PM on how to address 
them. More information about the reform committee is available at 
www.pemudah.gov.my.  The World Bank's fifth annual "Doing Business" 
Report, released on September 26, presents quantitative indicators 
on business regulations and the protection of property rights that 
can be compared across countries and over time.  The purpose of the 
report is to establish a competitive framework that encourages 
reform and to demonstrate direct links between reforms and economic 
growth.  Malaysia ranks 24th among 178 countries this year, up one 
notch from last year. 
 
 
 
 
GOM HOSTS "DOING BUSINESS" SEMINAR 
---------------------------------- 
 
¶3. (U) On October 31, the Government of Malaysia hosted a briefing 
on the World Bank's "Doing Business 2008" results, presented by 
Justin Yap, World Bank Regulatory Economist for Finance & Private 
Sector Development, and Sylvia Solf, World Bank Private Sector 
Development Specialist.  About 200 people attended including 
representatives from the Malaysian Government. 
 
HOW MALAYSIA FARES 
------------------ 
 
¶4. (U) Malaysia's best rankings were in ease of getting credit and 
protecting investors, where it ranked third and fourth respectively. 
 Its worst rankings were in enforcing contracts and dealing with 
licenses, where it ranked 63rd and 105th.  Yap pointed out that 
building a warehouse in Malaysia required 25 different procedures 
which took, on average, 285 days at a cost of 10 per cent of per 
capita income.  Eleven separate agencies were involved, involving 
multiple on-site inspections. 
 
¶7. (U) Countries ranking in the top ten for this indicator generally 
had three things in common:  they required few pre-approvals, few 
on-site inspections, and a single agency handled all necessary 
approvals.  Yap pointed out that each step in the regulatory process 
was yet another opportunity for corruption, in addition to the drag 
of over-regulation on the business community. 
 
¶8. (U) Malaysia ranks 67th in registering property, which requires 
five separate procedures and takes 144 days.  Several members of the 
audience stated that this was too optimistic - that in fact it took 
much longer. 
 
KUALA LUMP 00001642  002 OF 002 
 
 
 
HOW TO IMPROVE 
-------------- 
 
¶9. (U) Solf presented a number of reforms the government could do to 
improve its rank, none of which would require a change in the law. 
As it turns out, PEMUDAH already is working on some of these 
initiatives.  To improve its ranking in the ease of starting a 
business, Solf suggested an electronic database for company names, 
which would enable simple name changes and a single identity check, 
along with low, flat registration fees.  PEMUDAH is in the process 
of getting just such a system into place.  Previously, starting a 
business required name registration with multiple agencies, each of 
which took days or weeks to make sure no other company already was 
using that name. 
 
 
¶11. (U) For ease of registering property, Solf recommended that 
Malaysia adopt a flat stamp duty fee which would eliminate the need 
for time-consuming valuation visits.  In addition, efficiency should 
be improved in the land registry and stamp duty offices.  PEMUDAH 
convinced the GOM to contract out its valuation visits to the 
private sector, saving time in the property registration process. 
According to PEMUDAH's webite, processing stamp duty for land 
transfers has been reduced from a range of 16 to 62 days to a 
current range of 2 to 16 days.  Nine separate procedures, all of 
which were done manually, have been reduced to six; five of these 
can be done online. 
 
¶12. (U) For dealing with licenses, Solf recommended that a single 
agency be authorized to grant planning and building permits, and 
that on-site inspections be coordinated jointly or, better yet, 
contracted out to the private sector.  Another of Solf's 
recommendations was that companies should be given the option of 
paying taxes annually instead of monthly, and paying electronically. 
 Malaysia currently ranks 56th in ease of paying taxes, which 
requires 35 payments per year and takes 166 hours. 
 
 
OTHERS MORE SKEPTICAL 
--------------------- 
 
¶14. (SBU) Econ Counselor Matt Matthews and ECONOFF met with Lim Teck 
Ghee, retired World Bank Social Scientist and former head of a local 
think tank.  Lim was skeptical about the seriousness of the GOM's 
promises of economic reform.  Lim described PEMUDAH's 
accomplishments as minor reforms taking place "around the edges" of 
Malaysia's bureaucracy, but said that until the GOM is prepared to 
move beyond the racial preference policies contained in the New 
Economic Policy (NEP), there will be no real changes, he said. 
(Note: Lim was not involved in the preparation of the Doing Business 
report during his tenure at the World Bank.) 
 
 
 
COMMENT: 
 
16 (U) Malaysia's successes in cutting the red tape for businesses 
represent a step forward for the economy, and the PEMUDAH committee 
is proving to be an effective catalyst for change.  It is an 
especially positive sign that the GOM is willing to host a 
discussion highlighting its own bureaucratic barriers.  Improvements 
effected to date only scratch the surface of the reforms needed to 
unleash the full potential of the Malaysian economy -- reforms for 
which there is no realistic hope in the near term.  Still, the fact 
that economic reform is on the agenda of the PM bodes marginally 
better for Malaysia's future.